Since the 2023 Autumn Budget, the merged R&D tax scheme has been the centre of attention when it comes to reporting on support for businesses conducting R&D.
However, the merged scheme was only introduced for accounting periods starting on or after 1 April 2024 – the current accounting period for many businesses.
As you know, the deadline for any Company Tax Returns (CTRs) for this accounting period can be up to 12 months after the end of the period.
It’s therefore clear that the first tax returns claiming R&D tax credits under the merged scheme won’t be submitted until at least April 2025, and may not be submitted until late March 2026.
Claims for past accounting periods
If you’re currently working on CTRs for clients based on their last full accounting period, then you may still be working with the R&D Expenditure Credit (RDEC) or SME relief schemes.
It’s a growing misconception among businesses that these schemes have disappeared completely, so you may need to address this with clients – particularly as clients can claim under the scheme up to two years after the end of the relevant accounting period.
For example, consider a client with an accounting period beginning on 6 April each year.
Its most recent accounting period began on 6 April 2024 and will end on 5 April 2025. Because its 2024/25 accounting period began after 1 April 2024, this client would need to claim under the merged scheme before 5 April 2026.
However, the deadline for submitting the client’s CTR for the previous accounting period (6 April 2023 to 5 April 2024) has not yet passed (5 April 2025).
If you were preparing a CTR for this client’s 2023/24 accounting period now (October 2024), your client would need to claim under either the RDEC or SME relief schemes because that accounting period began before 1 April 2024.
Advice on the transition
This is the time at which clients may need advice on the difference between the schemes and what it means for future claims.
The headline differences between RDEC/SME relief and the merged schemes are:
- Credits for all – All claimants (aside from loss-making R&D-intensive SMEs) will claim tax credits under the merged scheme.
- Loss-making SME support – Enhanced support exists under the ERIS scheme for SMEs devoting 30 per cent of their expenditure or more to R&D activities that are loss-making for tax purposes.
- Total benefit – The merged scheme uses the main RDEC rate of 20 per cent, paying a taxable credit and delivering an overall benefit of up to 16.2 per cent.
The merged scheme is designed to simplify R&D tax credits and reliefs for HMRC, claimants and their agents. As we move forward to a point where all claims are made under the merged scheme, it’s important that you keep your clients up to date and help them understand what this will mean for their claims and any credits they receive.
If you need support with this, we’d always advise that you get in touch with the experts!
For advice on supporting clients with the transition from the RDEC and SME relief schemes to the merged scheme, please contact our consultancy team today.